Can tax be paid every year or at the time of maturity on the interest earned on Kisan Vikas Patra (KPV)?
– Dilip Saxena
Income received by way of interest from KVP scheme is taxable in the hands of taxpayers under the head ‘Other sources’. The Income Tax Act provides for taxation of income from other sources on cash or accrual basis at the option of the taxpayer.
If the taxpayer opts for taxation of KVP interest on ‘cash basis’, then interest from KVP can be taxed at the slab rates applicable in that year in the year of its maturity. Accordingly, the interest from KVP as per the prevailing slab rates will be charged to you at the time of maturity of such scheme.
On the other hand, the taxpayer may opt to pay tax on such accrued interest on annual basis so as to distribute the tax liability equitably during the period of the instrument and every year by including this income under the head Slabs rates can be availed. Income from other sources’
Amit Maheshwari, Tax Partner, AKM Global, answered this question.
We are an exempted establishment under the Employees’ Provident Fund and Miscellaneous Provisions (EPF & MP) Act, 1952. Provident fund is maintained by the trustees. Recently one of our members died after leaving the service. The contributory period is less than five years. Is TDS applicable at the time of settlement of claimants?
– Viraf Dastur
In accordance with the provisions of Rule 8 of Part A of the Fourth Schedule to the Income-tax (IT) Act, 1961, the accumulated balance due and to be payable to an employee participating in a recognized provident fund shall be excluded from computing his total income. . ,
(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if the service is terminated by reason of ill health of the employee, or for the contraction or closure of the business of the employer or for other reasons beyond the control of the employee, or
(iii) if, on termination of employment, the employee takes up employment with another employer, the accumulated balance due and to be payable shall be transferred to his personal account in any recognized provident fund maintained by the new employer goes; either
(iv) If the entire balance credited to the employee’s account is transferred to his NPS account
Based on the limited facts available, since the employee’s case does not come up in any of the above situations, withdrawal of accumulated balance does not appear to qualify for exclusion from the employee’s income. Thus, accumulated balances payable to legal heirs are likely to be treated as taxable income (as they would be assessable to tax as representative assessees).
Further, in the case of a private provident fund trust, at the time of payment of such taxable accumulated balance, the taxable salary income is required to be computed and tax deducted based on the tax slab rates applicable to the employee.
This question has been answered by Parijad Sirwala, Partner and Head, Global Mobility Services, Tax, KPMG in India.